1998 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

4-2-1998

Trump Hotel & Casino v. Mirage Resorts Inc

Precedential or Non-Precedential:

Docket 97-5281

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Recommended Citation

"Trump Hotel & Casino v. Mirage Resorts Inc" (1998). 1998 Decisions. Paper 68.

http://digitalcommons.law.villanova.edu/thirdcircuit_1998/68
Filed April 2, 1998 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

No. 97-5281 

TRUMP HOTELS & CASINO RESORTS, INC., 

 Appellant 

v. 

MIRAGE RESORTS INCORPORATED; THE STATE OF 

NEW JERSEY; THE NEW JERSEY DEPARTMENT OF 

TRANSPORTATION; THE SOUTH JERSEY 

TRANSPORTATION AUTHORITY; THE CASINO 

REINVESTMENT DEVELOPMENT AUTHORITY; THE NEW 

JERSEY TRANSPORTATION TRUST FUND AUTHORITY; 

JOHN J. HALEY, JR., in his capacity as Acting 

Commissioner of the New Jersey Department of 

Transportation; JAMES A. CRAWFORD, in his capacity as 

Executive Director of the South Jersey Transportation 

Authority; JAMES B. KENNEDY, in his capacity as 

Executive Director of the Casino Reinvestment 

Development Authority; STEVEN HANSEN, in his capacity 

as Executive Director of the New Jersey Transportation 

Trust Fund Authority 

On Appeal from the United States District Court 

for the District of New Jersey 

Civil Action No. 97-cv-01371 

Argued: February 11, 1998 

Before: GREENBERG, NYGAARD and McKEE, 

Circuit Judges 

(Opinion Filed: April 2, 1998) 
 HERBERT J. STERN, ESQ. (Argued) 

 Stern & Greenberg 

 75 Livingston Avenue 

 Roseland, New Jersey 07068 

 Attorneys for Appellant 

 PETER VERNIERO, ESQ. 

 JEFFREY J. MILLER, ESQ. 

 Office of Attorney General of 

 New Jersey 

 Division of Law 

 Richard J. Hughes Justice Complex 

 CN 112 

 Trenton, New Jersey 08625 

 Attorney for Appellees, The State of 

 New Jersey, The New Jersey 

 Department of Transportation, The 

 New Jersey Transportation Trust 

 Fund Authority, John H. Haley, Jr., 

 and Steven Hansen 

 GUY P. RYAN, ESQ. 

 MARC D. HAEFNER, ESQ. 

 (On the Brief) 

 Gilmore & Monahan 

 10 Allen Street 

 Box 1540 

 Toms River, New Jersey 08754 

 Attorney for Appellees, The South 

 Jersey Transportation Authority and 

 James A. Crawford 

 KEVIN J. COAKLEY, ESQ. (Argued) 

 Connell, Foley & Geiser LLP 

 85 Livingston Avenue 

 Roseland, New Jersey 07068 

 and 

 2 
 MICHAEL R. COLE, ESQ. 

 Riker, Danzig, Scherer, Hyland & 

 Perretti LLP 

 Headquarters Plaza 

 One Speedwell Avenue 

 Morristown, New Jersey 07962 

 Attorneys for Appellees, the Casino 

 Reinvestment Development Authority 

 and James B. Kennedy 

OPINION OF THE COURT 

McKEE, Circuit Judge: 

Trump Hotels & Casino Resorts, Inc., appeals from the 

district court's Rule 12(b)(6) dismissal of this action which 

Trump brought under Section 10(b) of the Securities

Exchange Act of 1934, 15 U.S.C. S 78j(b), and Securities 

and Exchange Commission Rule 10b-5, 17 C.F.R. 

S 240.10b-5. Trump also appeals the district court's 

subsequent refusal to exercise supplemental jurisdiction 

over state law claims. For the reasons that follow we agree 

with the district court's conclusion that Trump lacks 

standing, and we will therefore affirm. 

I. 

Mirage Resorts, Inc., and Trump Hotels and Casino 

Resorts, Inc. own competing casinos in Atlantic City, New 

Jersey. Although Trump brought this action under the 

securities laws, the seeds of this dispute were sown when 

a real estate development was planned in Atlantic City. 

Although our inquiry does not need to address the details 

of the planned development, a brief discussion of it is 

necessary to place the dispute in context. 

The action arises from a dispute involving the 

redevelopment of a parcel of land known as the Huron 

North Redevelopment Area ("H-Tract"). The H-Tract is 

located in the Marina District of Atlantic City and is 

comprised of approximately 178 acres, 150 of which are 

owned by Atlantic City. The tract consists of wetlands that 

 3 
were used as a municipal landfill until the 1960's. Trump 

claims that the H-Tract is highly contaminated with

hazardous substances and is vacant except for a few

municipally maintained facilities. 

In November of 1994, the City Council of Atlantic City 

authorized the City Planning Board to prepare a 

Redevelopment Plan for the H-Tract. On April 12, 1995, the 

City Council of Atlantic City adopted the Redevelopment 

Plan proposed by the Planning Board and began seeking a 

developer for the H-Tract pursuant to that Redevelopment 

Plan. Mirage emerged as a potential developer and proposed 

to build a casino complex on the H-Tract. Thereafter, 

Mirage entered into a series of agreements with the City 

(including a Redevelopment Agreement, and a 

Memorandum of Understanding) regarding the proposed

development of the H-Tract as a multi-casino resort. The 

Redevelopment Agreement gave Mirage an option to acquire 

and develop the H-Tract as a multi-casino resort in

exchange for Mirage's undertaking to remediate 

environmental contamination and to pay for the relocation 

of the City's existing facilities on the site. 

Shortly before the execution of the Memorandum of 

Understanding between Mirage and the City, the Atlantic 

City delegation to the New Jersey State Legislature

introduced legislation known as the Municipal Landfill Site 

Remediation & Redevelopment Act, N.J.S.A. 13:1E-116.1 - 

116.7 (the "Remediation Act"). The Remediation Act was 

subsequently enacted into law. According to Mirage, the 

Remediation Act allows Mirage to be reimbursed for the 

majority of the closure and remediation costs associated 

with its clean-up of the H-Tract.1 

The Redevelopment Agreement conditioned Mirage's 

obligations to develop the H-Tract upon a number of

_________________________________________________________________ 

1. The Remediation Act "permits a developer who closes and remediates 

an eligible site the opportunity to apply for reimbursement of up to 75 

percent of the costs after commencement of a business operation on the 

remediated site. The State makes the reimbursement from a fund 

comprised of one-half of all state sales taxes collected from the business 

on that site." State of New Jersey and The Casino Reinvestment 

Development Authority v. Trump Hotels & Casino Resorts, No. ATL-L1373-97, slip opn. at 8-9 (N.J. Law Div., May 14, 1997). 

 4 
contingencies. The most significant contingency for

purposes of this dispute was the approval and funding by 

the State of New Jersey of a roadway called the"Westside 

Connector." The plans for the Westside Connector include 

the construction of a 2.2 mile long highway connecting the 

Atlantic City Expressway to Brigantine Boulevard, and a 

2,000 foot long tunnel. Trump claims that construction of 

the tunnel portion of the Westside Connector requires the 

acquisition and destruction of nine private homes and more 

than 200 units of federally-assisted low income housing, 47 

of which are currently occupied. Trump also claims that the 

Westside Connector will provide direct access to the HTract, that its primary purpose is to facilitate the 

development of the H-Tract by Mirage, and that Mirage will 

not proceed with the development of the H-Tract in the 

absence of the Westside Connector. 

On September 17, 1996, the New Jersey Department of

Transportation ("DOT") and Mirage entered into a 

Memorandum of Understanding regarding the design and 

construction of the Westside Connector. The Memorandum 

of Understanding was followed by the execution of a Road 

Development Agreement between Mirage, the State of New 

Jersey, acting through the DOT, and the South Jersey 

Transportation Authority ("SJTA"). 

The Road Development Agreement reflects a commitment 

by the parties to move forward with the proposed Westside 

Connector, and it defines the respective obligations of the 

parties regarding the proposed construction and details 

various conditions to the closing of the Road Agreement. It 

also sets forth the funding sources for the project, which 

include $65 million in proceeds from bonds issued through 

the South Jersey Transportation Authority ("SJTA") 

repayable from, and collateralized by, parking and 

investment funds collected for use by the Casino 

Reinvestment Development Authority ("CRDA") and $55

million in the proceeds of bonds issued through the SJTA 

repayable from, and collateralized by, alternative 

investment tax obligations of all casinos that will be located 

on the H-Tract. 

Trump currently owns three of the thirteen casinos in 

Atlantic City. One of Trump's casinos, "Trump's Castle," is 

 5 
located in the Marina District near the H-Tract. Trump 

claims that it will be adversely affected by the construction 

of the Westside Connector and the development of the HTract in a number of ways. The Westside Connector will 

significantly reduce access to Trump's Castle. During 

construction it will effectively block access to Trump's 

Castle for a year or more, and make it difficult for persons 

from within and without the City to get to Trump Hotels' 

Atlantic City casinos. Trump claims that its business will 

thus be seriously injured. In addition, Trump claims that 

the new road will increase traffic flow into the city and 

therefore worsen local air quality conditions and traffic 

congestion which already adversely affect Trump's patrons 

and employees. Trump also alleges that the development 

will endanger the community because the H-Tract is highly 

contaminated. Trump alleges that since the Westside

Connector will bisect the city, the H-Tract development will 

cause permanent injury to the City's entire Boardwalk area, 

including Trump's Taj Mahal and Palace casinos, into 

which Trump has invested enormous amounts of money.

On March 14, 1997, Trump filed a complaint against 

Mirage, the State of New Jersey, the New Jersey DOT, the 

SJTA, the CRDA and the New Jersey Transportation Trust 

Fund in the United States District Court for the District of 

New Jersey. Trump sought declaratory and injunctive relief 

which would effectively bar the construction of the Westside 

Connector and the development of the H-Tract by halting 

the sale of the bonds that are a necessary component of the 

funding scheme. Trump alleged that the funding scheme for 

the planned construction of the Westside Connector and 

the development of the H-Tract would violate numerous 

statutes,2 state law3 and the New Jersey Constitution. 

_________________________________________________________________ 

2. In addition to an allegation of impending securities fraud, Trump's 

complaint also alleged violations of the following federal statutes: 

Section 

404 of the Clear Water Act, 33 U.S.C. S 1344; the Rivers and Harbors 

Appropriation Act of 1899, 33 U.S.C. S 403; the Federal-Aid Highway Act, 

23 U.S.C. S 109 and the Clean Air Act, 42 U.S.C. S 7506. The district 

court granted defendants' 12(b)(6) motion as to those claims and Trump 

has not appealed from the dismissal of those claims. The district court 

dismissed the Clean Water Act because Trump failed to comply with the 

act's notice requirement; dismissed the Rivers and Harbors Act claim 

 6 
However, we are only concerned with Trump's allegations 

that the funding mechanism violates the Securities and 

Exchange Act of 1934, 15 U.S.C. S 78j(b), Securities and 

Exchange Commission Rule 10b-5, 17 C.F.R. S 240.10b-5, 

and Article IV, S 7, P 2 of the New Jersey Constitution. 

The defendants initially moved to dismiss Trump's 

complaint under Fed. R. Civ. P. 12(b)(6) alleging that the 

complaint failed to state a claim. Simultaneously, they filed 

a complaint in the Law Division of the Superior Court of 

New Jersey naming Trump as a defendant and seeking a 

declaration that the statutory provisions which allowed for 

CRDA funding of various projects were constitutional.4 

State of New Jersey and the Casino Reinvestment 

Development Authority v. Trump Hotels and Casino Resorts, 

Inc., No. ATL-L-1373-97 ("State litigation"). 

On May 1, 1997, the district court dismissed all of the 

federal claims under Fed. R. Civ. P. 12(b)(6) and declined to 

exercise supplemental jurisdiction over the state law 

claims. Trump Hotels & Casino Resorts, Inc. v. Mirage 

Resorts, Inc., 963 F.Supp. 395 (D.N.J. 1997). This appeal 

followed. However, Trump only appeals from the district 

court's dismissal of its 10b-5 claim and the refusal to 

exercise supplemental jurisdiction over the New Jersey 

constitutional claim. The district court held that Trump had 

no standing to seek injunctive relief under Rule 10b-5 

because the claimed injury was too indirect and remote 

_________________________________________________________________ 

because the Act provides no private cause of action; dismissed the 

Federal-Aid Highway Act claim because Trump's complaint admitted that 

no federal funds would be used to fund the project; and dismissed the 

Clean Air Act claim because Trump failed to allege federal funding and 

failed to plead compliance with the statute's notice requirement. 

3. The complaint also alleged a violation of the New Jersey Coastal Area 

Facility Review Act, N.J.S.A. SS 13:19-1, et seq. The district court 

declined to exercise supplemental jurisdiction over that state law claim 

and Trump has not appealed from that decision. 

4. The defendants believed that Trump's federal litigation created a cloud 

that had to be removed before the CRDA could issue the bonds. 

Appellees' Br. at 6. They also believed that the federal court did not 

have 

subject matter jurisdiction over the state constitutional question raised 

by Trump in the federal litigation. Id. 

 7 
from the alleged securities fraud. Id. at 402. In refusing to 

exercise supplemental jurisdiction over Trump's state 

constitutional challenge, the district court reasoned that 

"state courts should be given the opportunity to interpret 

their state constitutions," and since "[o]nly the New Jersey 

Supreme Court can give an authoritative construction of 

the New Jersey Constitution." Id. at 408, the court

exercised its discretion and refused to hear Trump's state 

law claims.5 

II. 

Our standard of review of a dismissal under Rule 12(b)(6) 

is plenary. When reviewing a motion to dismiss for want of 

standing, we must accept as true all material allegations of 

the complaint and must construe the complaint in favor of 

the plaintiff. Warth v. Seldin, 422 U.S. 490, 501 (1975). A 

complaint should be dismissed only if, after accepting as 

true all of the facts alleged in the complaint, and drawing 

all reasonable inferences in the plaintiff 's favor, no relief 

could be granted under any set of facts consistent with the 

allegations of the complaint. ALA, Inc. v. CCAIR, Inc., 29 

F.3d 855, 859 (3d Cir. 1994). 

III. 

Trump argues that the use of bonds issued by the SJTA 

as a part of the funding mechanism violates Article IV, S 7, 

P 2 of the New Jersey Constitution, which Trump argues 

strictly limits the use of casino derived revenues to projects 

and programs that benefit senior and disabled citizens of 

the State of New Jersey. Trump further argues that neither 

the CRDA nor the SJTA plan to disclose this purported 

constitutional infirmity to potential purchasers of the 

bonds. Thus, argues Trump, the issuance of the bonds 

would constitute securities fraud in violation of the 

Securities and Exchange Act of 1934, and the Securities 

_________________________________________________________________ 

5. On May 14, 1977, the New Jersey state court held that the statutes 

challenged by Trump in the federal action were valid under the New 

Jersey constitution. Trump has appealed that decision and briefs on the 

appeal have been filed with the appellate division of the state court. 

 8 
and Exchange Commission Rule 10b-5. Consequently, 

Trump seeks to enjoin the sale of the bonds.6 

_________________________________________________________________ 

6. Although we need not dwell upon the intricacies of New Jersey's 

casino financing laws as part of our resolution of this appeal, this 

dispute is best understood in context with applicable state statutes, and 

relevant provisions of the New Jersey Constitution. Accordingly, we 

briefly describe them here in the margin: 

On November 2, 1976, New Jersey voters approved an amendment to 

the New Jersey Constitution which permitted the Legislature to authorize 

the establishment and operation of gambling casinos in Atlantic City. 

However, the amendment required that any such legislation 

 shall provide for the State revenues derived therefrom to be 

applied 

 solely for the purpose of providing funding for reductions in 

property 

 taxes, rental, telephone, gas, electric, and municipal utilities 

charges 

 of, eligible senior citizens and disabled residents of the State, 

and 

 for additional or expanded health services or benefits or 

 transportation services or benefits to eligible senior citizens and 

 disabled residents, in accordance with such formulae as the 

 Legislature shall by law provide. 

N.J. Const. art. IV, S 7, P 2, subparagraph D. The 1977 Casino Control 

Act was enacted pursuant to this amendment. The Casino Control Act 

established a tax on a casino's "gross revenues." N.J.S.A. 5:12-24. All 

funds derived from this tax were to be placed in a special fund referred 

to as the "Casino Revenue Fund." N.J.S.A. 5:12-145(a), which would be 

used exclusively for programs to assist the elderly and disabled. N.J.S.A. 

5:12-145(c). The Act also required casino licensees whose gross revenues 

exceeded the capital cost of constructing their casinos to make 

additional investments in Atlantic City. Any licensee that failed to make 

the required investments would be subject to an alternative investment 

tax on gross revenues dedicated to the Casino Revenue Fund. N.J.S.A. 

5:12-144(b)(3); see State of New Jersey and the Casino Reinvestment 

Development Authority v. Trump Hotels & Casino Resorts, Inc., No. ATL-L1373-97, slip opn. at 6 (N.J. Super. Ct. Law Div., May 14, 1997). 

In 1984, the Casino Reinvestment Act of 1984 was enacted to spur 

investment. State of New Jersey and the Casino Reinvestment 

Development Authority, at 6. The Act created the Casino Reinvestment 

Development Authority ("CRDA") to accelerate development and to 

provide a focus for reinvestment by the casinos. N.J.S.A. 5:12-153. The 

CRDA "was charged to maintain public confidence in the casino 

gambling industry as a unique tool of urban development for Atlantic 

City; to directly facilitate the redevelopment of existing blighted areas; 

and to address pressing social and economic needs by providing eligible 
projects in which casino licensees could invest." State of New Jersey, at 

6. 

 9 
Section 10(b) of the Securities Exchange Act of 1934 

provides: 

 It shall be unlawful for any person, directly or 

 indirectly, by the use of any means or instrumentality 

 of interstate commerce or of the mails, or of any facility 

 of any national securities exchange . . . 

 (b) To use or employ, in connection with the purchase 

 or sale of any security, . . . any manipulative or 

 deceptive device or contrivance in contravention of 

 such rules and regulations as the Commission may 

 prescribe . . . in the public interest or for the protection 

 of investors. 

15 U.S.C. S 78j(b)(emphasis added). Securities and 

Exchange Commission Rule 10b-5 was promulgated 

pursuant to Section 10(b) of the Act. That Rule provides: 

_________________________________________________________________ 

In 1993, the New Jersey Legislature amended the Casino Control Act 

by enacting the Parking Fee Act "to accelerate the CRDA's efforts to 

develop the Atlantic City `corridor region' (the infrastructure connecting 

the Atlantic City Expressway to the Boardwalk)." State of New Jersey, at 

7. The Legislature imposed a $2.00 fee on consumers who parked at 

casino-controlled parking facilities and required that $1.50 of this 

amount to be remitted to the CRDA whether or not the consumer used 

or entered the casino facility. N.J.S.A. 5:12-173.3. Id. Proceeds are 

deposited in a special account in the State Treasury to be used for, 

among other things, any project that the CRDA determines is "related to 

improving highways, roads, infrastructures, traffic regulation and public 

safety" in the corridor region. N.J.S.A. 5:12-173.4. The Legislature also 

authorized the CRDA to sell bonds to finance such projects and to pledge 

parking fee proceeds to repay the indebtedness. N.J.S.A. 5:12-173.6, 

173.7. 

Mirage, the State of New Jersey and its various agencies entered into 

the Road Agreement under certain of these New Jersey statutes, viz., 

N.J.S.A. 5:12-173.1 - 173.7 (requiring the CRDA to collect parking fees 

to fund "eligible projects") and N.J.S.A. 5:12-144.1 and N.J.S.A. 5:12-173 

(requiring casino licensees both to purchase bonds issued by the CRDA 

and to make investments in eligible projects approved by the CRDA). In 

one of its state law causees of action, Trump asked the district court to 

declare these enabling statutes unconstitutional under the New Jersey 

Constitution. However, the district court refused to exercise 

supplemental jurisdiction over the constitutional challenge and 

dismissed it without prejudice. 

 10 
 It shall be unlawful for any person, directly or 

 indirectly, by the use of any means or instrumentality 

 of interstate commerce, or of the mails or of any facility 

 of any national securities exchange, 

 (a) To employ any device, scheme, or artifice to 

 defraud, 

 (b) To make any untrue statement of a material fact or 

 to omit to state a material fact necessary in order to 

 make the statements made, in the light of the 

 circumstances under which they were made, not 

 misleading, or 

 (c) To engage in any act, practice, or course of business 

 which operates or would operate as a fraud or deceit 

 upon any person, in connection with the purchase or 

 sale of any security. 

17 C.F.R. S 240.10b-5 (emphasis added). For our purposes, 

the operative phrase in both the statute and the regulation 

is "in connection with the purchase and sale." Trump does 

not allege that it intends to purchase the bonds when, and 

if, they are issued. Thus, the threshold issue is whether 

Trump has standing to bring this action. 

A. 

"In essence the question of standing is whether the

litigant is entitled to have the court decide the merits of the 

dispute or of particular issues." Warth v. Seldin, 422 U.S. 

490, 498 (1975). Standing "subsumes a blend of 

constitutional requirements and prudential considerations." 

Valley Forge Christian College v. Americans United for 

Separation of Church and State, Inc., 454 U.S. 464, 471 

(1982). Obviously, satisfying the Article III "case or 

controversy" requirement is the "irreducible constitutional 

minimum" of standing.7 Lujan v. Defenders of Wildlife, 504 

U.S. 555, 560 (1992). Article III constitutional standing 

contains three elements: (1) the plaintiff must have suffered 

_________________________________________________________________ 

7. The constitutional dimensions of the standing question bear a close 

relationship to the questions of ripeness and mootness. See Warth v. 

Seldin, 422 U.S. at 499 n.10. 

 11 
an injury in fact -- an invasion of a legally protected 

interest which is (a) concrete and particularized and (b) 

actual or imminent, not conjectural or hypothetical; (2) 

there must be a causal connection between the injury and 

the conduct complained of -- the injury has to be fairly 

traceable to the challenged action of the defendant and not 

the result of the independent action of some third party not 

before the court; and (3) it must be likely, as opposed to 

merely speculative, that the injury will be redressed by a 

favorable decision. Id. at 560-61 (citations, internal 

quotations, brackets and ellipses omitted). 

In addition to the " `immutable requirements of Article III,' 

the federal judiciary has also adhered to a set of prudential 

principles that bear on the question of standing." Bennett v. 

Spear, ___ U.S. ___, 117 S. Ct. 1154, 1161 (1997) (citation 

omitted). They are: (1) "the plaintiff generally must assert 

his own legal rights and interests, and cannot rest his 

claim to relief on the legal rights or interests of third 

parties," Valley Forge Christian College, 454 U.S. at 474 

(citation omitted); (2) "even when the plaintiff has alleged 

redressable injury sufficient to meet the requirements of 

Article III, the federal courts will not adjudicate abstract 

questions of wide public significance which amount to 

generalized grievances pervasively shared and most 

appropriately addressed in the representative branches," Id. 

at 474-75 (citation omitted); and (3) "the plaintiff 's 

complaint must fall within the zone of interests to be 

protected or regulated by the statute or constitutional 

guarantee in question." Id. (citation and internal quotations 

omitted). 

It is this latter "zone of interests" consideration which is 

of paramount concern here. Although the "zone of interests" 

consideration had its origin in the context of judicial review 

proceedings under the Administrative Procedures Act

("APA"), see Association of Data Processing Service

Organizations, Inc. v. Camp, 397 U.S. 150 (1970), it is now 

clear that it applies "in suits not involving review of federal 

administrative action," and it is one "among other 

prudential standing requirements of general application." 

Bennett v. Spear, 117 S. Ct. at 1161. 

 12 
B. 

It is by no means certain that Trump has alleged 

sufficient injury to achieve Article III standing here. 

However, even if the allegations of fraud in the issuance of 

securities that Trump does not intend to purchase are 

sufficient for purposes of Article III, they clearly fall outside 

the zone of interests protected by the SJTA, section 10(b) of 

the Securities Act, and Rule 10b-5. 

The Supreme Court has held that only a purchaser or

seller of a security has standing to bring a private 10b-5 

securities fraud action for money damages. Blue Chip 

Stamps v. Manor Drug Stores, 421 U.S. 723 (1975). 

However, Trump is not bringing a private damages action 

under 10b-5. Rather, Trump seeks injunctive relief against 

what it claims is an impending 10b-5 violation, and it 

claims standing based on a pre-Blue Chip Stamps decision 

of this court, Kahan v. Rosenstiel, 424 F.2d 161 (3d Cir. 

1970). In Kahan, we carved out a narrow exception to the 

"Birnbaum rule" and held that the non-purchasing or nonselling plaintiff of a security has standing to request 

injunctive relief for a 10b-5 violation. 

The Birnbaum rule takes its name from Birnbaum v. 

Newport Steel Corp., 193 F.2d 461 (2d Cir. 1952), which 

was decided twenty-three years before the Supreme Court's 

Blue Chip Stamps decision. In Birnbaum the court 

examined the legislative history of securities legislation and 

concluded that Rule 10b-5 "extended protection only to the 

defrauded purchaser or seller" of the security at issue. Id. 

at 464. Thus was born the Birnbaum purchaser/seller rule. 

In Blue Chip Stamps, the Supreme Court expressly declared 

that "Birnbaum was rightly decided." 421 U.S. at 731. 

Kahan was decided eighteen years after Birnbaum, but 

five years before Blue Chip Stamps. In Kahan we reviewed 

then existing precedent in the Second Circuit and 

concluded that, despite the Birnbaum rule, Second Circuit 

jurisprudence allowed a non-purchasing or non-selling 

plaintiff to bring an action for injunctive relief under 10b-5. 

We stated "[t]he purchase-sale requirement must be 

interpreted so that the broad design of the Exchange Act, to 

prevent inequitable and unfair practices on securities 

 13 
exchanges and over-the-counter markets, is not frustrated 

by the use of novel or atypical transactions." 424 F.2d at 

171. Accordingly, we held that 

 [n]either the language of S 10(b) and Rule 10 b-5 nor 

 the policy they were designed to effectuate mandate 

 adherence to a strict purchaser-seller requirement so 

 as to preclude suits for [injunctive] relief if a plaintiff 

 can establish a causal connection between the 

 violations alleged and the plaintiff's loss.

Id., at 173. 

Trump argues that this "relaxed standing" rule of Kahan 

survived Blue Chip Stamps. Mirage argues to the contrary 

citing Cowin v. Bresler, 741 F.2d 410 (D.C. Cir. 1984) to 

support its position that Blue Chip Stamps sounded the 

death knell for the "relaxed standing" rule. In Cowin, the 

court held that the Blue Chip Stamps purchaser-seller 

limitation applies with equal force to equitable actions. 

We have not, heretofore, squarely addressed this issue. In 

Tully v. Mott Supermarkets, Inc., 540 F.2d 187, 194 (3d Cir. 

1976), a panel of this court assumed that the "relaxed 

standing" rule of Kahan survived Blue Chip Stamps, but 

held that the case before it did not fit into that rule. 540 

F.2d at 194. In Sharp v. Coopers & Lybrand, 649 F.2d 175, 

186 n.15 (3d Cir. 1981), overruled in part on other grounds, 

In re Data Access Systems Securities Litigation, 843 F.2d 

1537 (3d Cir. 1988)(en banc), we wrote that Blue Chip 

Stamps precludes a non-purchaser or non-seller from

seeking injunctive relief for an impending 10b-5 violation. 

However, that reference is clearly dicta, and not part of the 

holding. 649 F.2d at 187 n.15. 

Thus, we have yet to decide whether a non-purchasing or 

non-selling plaintiff continues to have standing to seek 

injunctive relief for an alleged 10b-5 violation after Blue 

Chip Stamps. However, resolution of that question must 

await yet another day as we need not now decide it to 

resolve the case at bar. Whether or not the relaxed standing 

rule survives Blue Chip Stamps, the injuries that Trump 

alleges here are not within the zone of protection 

established by S 10(b) and Rule 10b-5 regardless of the 

relief sought. Furthermore, Trump has not established the 

 14 
prerequisite nexus between the injuries it claims, and the 

securities violations that it alleges. Even under Kahan's 

rule of relaxed standing, one seeking injunctive relief had to 

establish a "causal connection between the violations 

alleged" and the loss claimed. See Kahan, 424 F.2d at 173. 

As noted above, there we stated that we would not strictly 

adhere to the "purchase-seller requirement . . . if a plaintiff 

could establish a causal connection between the violations 

alleged and plaintiff's loss." (emphasis added). Here, Trump 

has not established any such causal link. Accordingly, we 

hold that the injuries that Trump alleges are insufficient to 

confer standing to seek relief under either Blue Chip 

Stamps, or our holding in Kahan. 

Trump has no intention of purchasing the bonds, and, 

therefore, is not a member of the universe of potential 

investors.8 Consequently, it cannot demonstrate that it 

would suffer an injury sufficiently connected to the 

securities fraud it alleges.9 Trump argues, in part, that it 

must be allowed to bring this action because of the unique 

circumstances surrounding an offering of government

bonds. At oral argument Trump suggested that its role in 

enjoining this sale of securities without proper disclosure is 

tantamount to acting as a private attorney general on 

behalf of the investing public, and the public in general, 

and this is sufficient to confer standing. However, Trump is 

obviously aware of the purported infirmity that it alleges in 

this offering. The claimed constitutional infirmity was the 

_________________________________________________________________ 

8. In view of Trump's allegations, it would not further Trump's position 

to allege an intention to purchase as Trump could not, in good faith, 

assert that it had relied upon the alleged fraudulent conduct. In order to 

state a securities fraud claim under S 10(b) and Rule 10b-5, a private 

plaintiff must plead that he or she "reasonably relied on the 

misrepresentation or omission and . . . consequently suffered damage." 

In re Westinghouse Securities Litigation, 90 F.3d 696, 710 (3d Cir. 1996). 

9. Trump is not at all in the same position as was Kahan in Kahan v. 

Rosenstiel. Kahan was a minority shareholder and, assuming the truth 

of the allegations in his complaint, was being offered less money for his 

shares than was the majority shareholder. Thus, Kahan stood to suffer 

a loss in the value of his investment because of the alleged securities 

fraud. Trump cannot demonstrate a loss from an investment it will never 

make. 

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basis of state court litigation and it must now be disclosed 

to prospective purchasers. That disclosure adequately 

protects the investing public without a tortured standing 

analysis under federal securities laws. Section 10(b) and 

Rule 10b-5 reflect a "strong federal interest .. . in ensuring 

a proper flow of information between the parties to a 

securities transaction." Lewis v. Chrysler Corp., 949 F.2d 

644, 649 (3d Cir. 1991)(quoting Healey v. Catalyst Recovery 

of Pennsylvania, Inc., 616 F.2d 641, 646 (3d Cir. 1980)). As 

we wrote in Kahan: 

 The Act was designed to eliminate deceptive and unfair 

 practices in security trading and to protect the public 

 from inaccurate, incomplete and misleading 

 information. The thrust of the Act and the decisions 

 interpreting it is to give the investing public the 

 opportunity to make knowing and intelligent decisions 

 regarding the purchase and sale of securities. 

Kahan, at 173 (emphasis added). 

Aside from nebulous allegations of environmental harm 

and harm to the Atlantic City community, Trump's 

essential complaint is that the proceeds from the sale of the 

bonds will be used to build a highway and tunnel which 

will funnel traffic from the Atlantic City Expressway to the 

multi-casino complex Trump's competitor will build on the 

H-Tract. The highway and tunnel, once completed, will be 

a boon for Mirage and Trump fears economic loss. 

Admittedly, there is a highly attenuated connection between 

the funding scheme and Trump's claimed "injury". However, 

that "injury" is much too tenuous to be regarded as arising 

from the alleged securities fraud. The injury results from 

the highway that will bring traffic to Trump's competitor. 

Trump's assertion that the injuries are within the zone of 

interests protected by S 10(b) and Rule 10b-5 requires us to 

stretch reality as well as precedent past the breaking point. 

We refuse to do so. Accordingly, we hold that Trump has no 

standing to seek injunctive relief against the issuance of the 

bonds. 

IV. 

Two small matters remain. First, Trump claims that the 

district court abused its discretion by "failing to provide 

 16 
Trump with an opportunity to supply further particularized 

allegations of fact to support its standing." Appellant's Br. 

at 47. However, Trump never requested leave of the district 

court to amend or supplement its complaint. Therefore, it 

cannot raise that issue on appeal. Mann v. Conlin, 22 F.3d 

100, 103 (6th Cir. 1994)(where plaintiff never requested 

leave to amend in the district court, that argument is not 

properly before appellate court). 

Second, as noted above, Trump has appealed from the

district court's decision to refrain from exercising 

supplemental jurisdiction over its state law claim that the 

proposed funding scheme violates the New Jersey 

Constitution. However, supplemental jurisdiction is

exercised as a matter of discretion. See Borough of West 

Mifflin v. Lancaster, 45 F.3d 780, 788 (3d Cir. 1995). A 

court may decline to exercise supplemental jurisdiction over 

a state law claim where "the claim raises a novel or 

complex issue of state law." 28 U.S.C. S 1367(c)(1). Clearly, 

the question of whether the proposed funding scheme for 

the Westside Connector violates the New Jersey 

Constitution is a complex issue of state law which is better 

left to the New Jersey courts to determine. See Doe v. 

Sundquist, 106 F.3d 702, 708 (6th Cir. 1997)(declining to 

exercise supplemental jurisdiction, in part, "out of respect 

for the right of a state court system to construe that state's 

own constitution."). Thus, we believe that the district court 

did not abuse its discretion by refusing to exercise 

supplemental jurisdiction over the state law constitutional 

claim. 

V. 

For the above reasons, the judgment of the district court 

will be affirmed. 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

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